Deutsche Telekom said it will use Microsoft TV IPTV Edition software to
bring television to 50 German towns by the end of 2007.

While the two companies didn't release terms of the contract, the
agreement is the software giant's second largest IPTV pact next to a
$400 million deal with AT&T signed in 2004, Microsoft said in a statement.

Deutsche Telekon said it will use Microsoft TV software to power the
telecom's "T-Home" 50 Mbps VDSL service, bringing video to subscribers
in 50 German cities.

After launching this summer in 10 cities, including
Berlin, Hamburg, Cologne and Munich, the broadband video offering will
expand to 40 more locations by the end of 2007, according to the two
companies.

The IPTV service will deliver more interactive television features,
digital video recording and on-demand video, according to the German
telecom company.

IPTV is expected to reach 16.7 million Europeans by 2010, according
to Gartner Research.

Microsoft CEO Steve Ballmer in a statement called today's announcement "a very
significant milestone" and an agreement that will "create a revolution
in TV entertainment for consumers across Germany."

Gartner IPTV analyst Patti Reali told internetnews.com that what might be most significantly is that Deutsche Telekom chose Microsoft over competitor Siemens.

Reali called the announcement a win for Microsoft and their IPTV
intentions. "It's really jelling and coming together for them."

Reali described the German market as "weird." In a landscape with a
mixture of over-the-air broadcasts and satellite subscribers, Europeans
are not as infatuated with on-demand, pay per-view or cable television.
However, France and Spain are offering robust IPTV services, Reali said.

British Telecom said Monday its BT Vision IPTV service, which uses Microsoft TV software, will be available this summer.

"It's imperative that a lot of these operators get into this," Reali
said. Dwindling revenue from the voice side has become a problem for
telecoms.

In the U.S., telecom providers are testing IPTV. AT&T
plans to test in Atlanta later this year. And Verizon has its
fiber-to-the-home service, Fios TV.

"IPTV is not a major force in the U.S.," said Todd Chanko, an analyst
with JupiterResearch. With 89 percent of American households either
cable or satellite subscribers, Chanko called IPTV's chances for success
at pretty slim. (JupiterResearch and internetnews.com are owned by Jupitermedia.)

With U.S. companies only in the trial phases, IPTV is considered
still a startup. Adoption will be driven by low prices, according to Chanko.

However, although trials will start out in the thousands of
participants, as the IPTV roll-outs reach full-scale, Microsoft could
encounter problems.

While today's announcement puts Microsoft at the top
of the IPTV heap, "it's now about execution," said Reali.

Microsoft requires 600 servers to deliver IPTV to a million people,
the analyst said. The AT&T program is expected to cover 18 million people. The Deutsche Telekom contract will cover even more.

"This is absolutely false," Microsoft TV spokesperson Jim Brady said. While he said he couldn't comment on the number of servers it would take to cover a city, he said "it will be competitive."

Judging how IPTV implementations will work is difficult because most
haven't reached beyond the trial stage.

Hong Kong is one exception,
though. In November, Pacific Century CyberWorks, the broadband arm of
Hong Kong Telecom, announced its Now TV surpassed 500,000 IPTV subscribers.

While IPTV is gaining ground in Europe and the U.S., the outcome
isn't guaranteed. "There's still a lot of uncertainty," said Reali.